Abuse of POWER
Many homebuyers are at the mercy of developers, being forced to sign agreements that go against their interests ‘ABUSIVE’ CLAUSES THAT GO AGAINST HOMEBUYERS
Impressed by a developer’s promises, Kushal Sen, a Delhi-based businessman, paid ₹ 15 lakh as booking amount which came to 10% of the cost of a 3BHK flat in a group housing project in Gurgaon. After almost a year when the developer called him to sign a builder-buyer agreement, Sen objected to some unjust clauses in the agreement and quit the project.
“When I asked the developer to return the booking money, he The allottee shall have no objection if the developer gives on lease or hires any part of the top roof/terraces above the top floor for installation and operation of antennae, satellite dishes, communication towers etc
If the developer is able to get additional/purchasable FAR or it becomes possible to raise further construction then additional construction shall be made on the already approved towers/blocks The size of the flat given in plans is tentative and can be modified due to technical and other reasons. The amount paid by the allottee to the company to the extent of 15% of the basic price of the unit shall be forfeited in case of non-fulfillment of the terms of allotment and
refused. The strangest clause in the agreement was the one which said, “The promoter will have the option to either accept or reject the signed builderbuyer agreement within 30 days after receiving the same from the intending allottee(s),” says Sen.
Sharing his experience with friends later, he came to know that many of them had invested in residential projects in Delhi NCR and signed agreements heavily tilted in favour of builders – “with the most abusive of clauses against homebuyers,” Sen adds. shall not be refunded in any case whatsoever
In order to provide necessary maintenance services, the developer may, upon the completion of the complex, hand over the maintenance of the complex to any individual, firm, body corporate, association etc
If the intending allottee(s) fails to execute and deliver to the promoter the builder-buyer agreement in its original form duly signed within ten days from the date of dispatch by registered post by the promoter, then the application of the intending allottee shall be treated as cancelled and the earnest money paid by the intending allottee shall stand forfeited without any notice or reminders
Many homebuyers say that in every real estate deal, builderbuyer agreements are signed almost a year after the booking amount is paid for an apartment. By that time the allottees, having already invested in the project, have no option but to follow the builders’ dictates.
This issue has been prominently addressed in the case of Belaire Owners’ Association vs builder DLF Ltd, in which the Competition Commission of India had held that certain clauses in the agreement gave DLF the sole discretion to make changes in zoning plans, usage pattern, super area, carpet area and for alteration of structure. Even if the location of the apartment changed and if the buyer demanded a refund, no interest was to be paid by the builder.
“The buyers had no rights to raise objections. Even if they had paid the full amount, the builder could create mortgage on the property of the buyers for raising finance for its own purpose,” the CCI order had said. “DLF Ltd inserted such clauses which made exit next to impossible for buyers. In case of delay by the builder, DLF Ltd was to pay compensation of ₹ 5 per sq feet per month, equivalent to about 1% per annum interest, while in case of delay in payment by the buyer, the interest charged was 15% per annum for the first 90 days and 18% thereafter,” CCI had held.
Many homebuyers in Ghaziabad, Noida, Greater Noida and Gurgaon complain of similar abusive clauses in the agreements due to the developers’ dominant position. The most common of all arbitrary clauses is the one which gives the developer the right to get additional floor area ratio (FAR) from the development authority and add more floors and towers to the project at any time after the launch. The developer inserts this clause in the agreement just to evade the
huge interest to be paid on the remaining amount that is lying idle for which the customer may be forced to pay, say consultants.
“The government has said that all construction- linked expenses should be paid out of the escrow account. It is, therefore, not clear whether the interest expenses (which are also part of construction cost) and land cost are also part of this 50% limit or not. A clarification is required on that front,” says Neeraj Bansal, partner, KPMG in India.
For projects in far-flung areas where the land cost is much less, a higher amount should be kept aside in the escrow. “The government needs to take one more step, they should define what an urban location is for which 50% amount should be kept aside in an escrow account and define a second layer of cities where the escrow component should be 70% or even higher so that the developer is forced the complete the project on time,” says Bansal.
So, how will this change impact the real estate sector? The impact of this in the long run will be that there will be an assured supply in the market which in turn will impact prices of units.
“This will increase available liquidity with the builders. Considering the factors such as high interest rates on home loans, difficulty in securing bank credit for projects and overall dip in private equity investment sentiment, the move to reduce the escrow amount limit will usher in liquidity for both housing and commercial projects,” says Sachin Sandhir, global managing director, emerging business and MD, South Asia, RICS. provisions of the UP Apartment Act which makes it mandatory for him to take the consent of homebuyers for plan changes after the project launch.
An Allahabad High Court ruling has made life easier for homebuyers. In the case of Abhinav Jain vs the state of UP, the HC made two things very clear: First, if a builder allots apartments to intending purchasers in an under- construction group housing project, he has to take the consent of all the allottees before he plans any changes in the original plan. Second, if the developer has already given possession in the project, let’s say he has completed 60% of the project and given flat ownership to the allottees, he has to take the consent of a majority of the apartment owners. Benefits from the FAR have to also be equally divided among all the owners.
However, t his cl ause i s being blatantly abused by all the developers in Noida and Ghaziabad. “Developers make the homebuyers sign an agree-
ment in advance to convince the development authority that they (developers) have the consent of all the allottees and that they should be given the purchasable FAR,” says Indrish Gupta, founder member of the Noida Extension Flat Owners Welfare Association. Recently, the Noida Authority gave purchasable FAR to 17 developers on these grounds. Once the developers get purchasable FAR, they completely change the layout plan of the project. It’s a very serious issue, he adds.
Real estate experts say that the development authorities of respective areas should involve all the stakeholders to design a model builder-buyer agreement.